Macroeconomics Chapter 15 Answers – Flashcards
Unlock all answers in this set
Unlock answersquestion
Money
answer
The set of assets that people use regularly to buy G +S. (Medium of exchange)
question
Wealth
answer
Total accumulation of all assets
question
What happens without money?
answer
Barter; Money helps specialization, efficiency and economic growth
question
Medium of Exchange
answer
an item buyers give to sellers when they want to purchase g + s.
question
Unit of account
answer
the yardstick people use to post prices and record debts
question
Store of value
answer
an item people can use to transfer purchasing power from the present to the future Money take all three forms
question
Form of deferred payment
answer
A property of an item that makes it desirable for use as a means of settling future debt.
question
Credit cards
answer
Not assets but liabilities and thus are not counted as money
question
Liquidity
answer
How easily an asset can be turned into a medium of exchange
question
Transaction approach
answer
Method of measuring the money supply by looking at money as a medium of exchange
question
M1
answer
Transaction Deposits + currency
question
Commodity Money
answer
takes the form of a commodity with intrinsic value Ex: gold coins, cigs in POW camps
question
Fiat Money
answer
money without intrinsic value, used as money because of gov't decree EX: US dollar
question
Fiduciary Monetary System
answer
A system in which currency is issued by the government and its value rests on the public's confidence that it can be exchanged for g + s
question
Liquidity Approach
answer
A method of measuring the money supply by looking at money as a temporary store of value
question
M2
answer
M1 + savings + small time deposits + mutual funds
question
Financial Markets
answer
Institutions through which savers can directly provide the funds to borrowers
question
Asymmetric information
answer
Information possessed by the borrowers in a financial transaction but not by the other
question
Adverse selection
answer
The likelihood that borrowers may use their borrowed funds for riskier projects
question
Moral hazard
answer
The possibility that a borrower might engage in riskier behavior after a loan has been obtained
question
Large scale and lower management costs
answer
People can pool funds in an intermediary, reducing individual costs
question
Federal Reserve
answer
Central bank is the regulator of the commercial banks -Established in 1913 by Woodrow Wilson
question
Board of governors
answer
-6 members appointed for 14 year terms -Janet Yellen appointed Jan 2014. -7 board members
question
12 Regional Banks
answer
-issue currency -clear checks -overseeing of banks
question
Federal Open Market Committee
answer
meet every 6 weeks to vote on monetary policy
question
Central Bank
answer
an institution that oversees + regulates the banking system, and influence the money supply
question
Roles of Fed
answer
...
question
Monetary Policy
answer
the setting of the money supply by policy makers to influence AD + thus RGDP
question
Banker to Banks
answer
Fed holds reserves for other banks
question
Lends money
answer
The fed sometimes lends money to banks during difficult financial times
question
Two Mandates of the Fed
answer
1. Keep inflation low 2. Keep unemployment low
question
Is fed apart of the government?
answer
The fed is an autonomous institution meaning that they can make policy without presidential or congressional approval.
question
Required reserves
answer
R; reserve X deposits
question
Excess Reserves
answer
Total reserves-required reserves
question
Reserve ratio
answer
RR; Reserves/ deposits X 100
question
Money Multiplier
answer
A number that, when multiplied by a change in reserves in the banking system, yields the resulting change in the money supply. Formula= max potential change in ms / change in reserves
question
FDIC
answer
instituted in 1933, in order to reduce bank runs -any deposits currently below $250,000 will be insured by the gov't if the bank goes bankrupt.
